Currently browsing Primerica Series

As you might already know, a heated debate about Primerica has raged on this blog for quite some time now. This is why I am actually covering this IPO (since I usually leave stock picks to our other blog; Intelligent Speculator). So if you want a stake in Primerica, the controversial but surely profitable company, their stock is going to be offered to the public this morning!

A few numbers on the Primerica IPO

Shares are deemed to be offered at a price range between $12 to $14 at the beginning.

At the middle of this price range, Primerica stocks would sell at 6.74 times earnings.

The US median is 9.52 times, so it’s 29% less.

Its per share income as of 2009 would be $1.93.

Primerica (owned by Citigroup) hopes to raise 252M$ today with its first IPO since they were bought by Citi.

Primerica is selling 24% of the company today. So the control will remain in the hands of Citigroup.

Primerica reported an income of 495M$ in 2009 as its revenue rebounded after taking a plunge of 72% back in 2008.

My Opinion on Primerica, the stock, not the business opportunity

I actually think that Primerica will sell at the opening for a very reasonable price and it could be interesting to see how the stock will fluctuate throughout the year. At $13, I would have probably considered it for our 2010 stock picking contest (update tomorrow!).

It seems to be a solid company based on a huge, humongous, incredibly large number of salesmen (more than 100,000!). Since people will always need insurance, good or bad, insurance reps should continue to make a good buck down the road.

How can I buy Primerica Stock?

Well, first you need a brokerage account and then, you need to know what the Primerica ticker is… drum roll……

Primerica Ticker: PRI

That’s it! You are set to buy a few shares of Primerica!

Will you buy Primerica stock?

Hey, I want to know if you want to jump in the boat with me? I am seriously thinking of giving it a try, any thoughts?

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PRIMERICA FIRST IPO!

My friend just called me to let me know that Primerica is finally going public! After several unsuccessful attempts to sell Primerica, Citigroup found no other choice but to offer the first Primerica IPO. In fact, Citigroup is expecting to get as much as $100 million.

I don’t have time to write more about Primerica IPO right now, but I’ll come back with more thoughts on it later on… Let’s just say this could mean significant changes in many Primerica agents’ business models…

While you can read the full story over at Bloomberg, I was more concerned about each individual’s business model.

As I have mentioned in my Primerica Reviews, Primerica’s business model is based on recruiting. The real way of making money through Primerica is to build a sales force who sells insurance products to their relatives. We may debate if their term insurance products are good or not, this is not the point of the post. My main question is, will Primerica’s business model be threatened by this IPO?

Primerica IPO impacts

When you read Primerica’s contract, it clearly stated that clients of Primerica remain under the control of Primerica if the agent was ever leave the company. So, what if a major insurance company buys Primerica shares to take over control of it?

Some say that it will take over a huge sales force (more than 100,000 Primerica agents). Others, the evilest of us, may think about buying one of the biggest client databases in term of insurance products.

This would mean that the so called “business” Primerica agents built could change hands within a few years (and a lot of millions invested in stock ). I am not saying it will happen overnight, but it is surely a sign that nothing can be taken for granted.

The potential new owner could also decide to cut the pyramidal aspect (commission wise) and name Regional Directors and VPs and pay them as salaried employees (this would cut their pay checks drastically and significantly increase Primerica’s profit… which is always good for shareholders!).

And what could Primerica agents in the face of an IPO?

Not much unless they have $100M to spend on the shares! While $100M will provide new cash to Citigroup and won’t really affect Primerica’s upper management, it still opens a breech. This breech will force Primerica to open its books and show how interesting (or uninteresting) the company could be for a potential bidder (hostile or not).

Then again, another point is the following: Do you feel safe building a business that is not yours? You can’t really call it a team since they are not your agents and they don’t sell to your clients… I am wondering…what about you?

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If you have been on my blog and been checking comments once in a while, you probably noticed that some people argue (sometimes really hard) about Primerica and my point of view to know if Primerica is a scam or not. After several post about this company and discussion with Primerica agent, I have come to the conclusion that Primerica is not a scam but it is not for everyone also.

You probably heard that Primerica is for sale by Citigroup. In fact, Citigroup is looking to sell Primerica since they urgently need more cash flow to maintain their business model. I have made some great contacts within the company since I wrote my Primerica Series. I must admit that I have probably more friends than foes within Primerica 😉 One of them contacted me earlier this week to tell me that Primerica has been sold!

It will actually be announced later on this week (or maybe today!) and this is why I decided to post this article at midnight to make sure I was the first one to publish this big news: Primerica has been bought by… Berkshire Hathaway!

The Company managed by Warren Buffett is known to buy solid and cash flow positive assets. This is why Berkshire Hathaway decided to buy Primerica. Citigroup desperately need cash to keep going in the economic turmoil and certainly didn’t want to disappoint investors since their announcement back in March that the first two months of activities in 2009 have been lucrative.

This is actually a good trade for both parties. Berkshire is acquiring a solid and well built cash machine that will keep producing a good income flow for many years. Regardless if you like Primerica or not, you must admit that their business model is made to make good cash; they pay only if you sell and they spend little to no money into marketing approach (since they use the word of mouth and their own employees to recruit). They actually are one of the most lucrative assets owned by Citigroup right now.

On the other side, Citigroup will receive enough money to re-establish his status of the biggest bank in the world and going forward. Since cash is king and banks are definitely looking for more these days, the sale of Primerica will allow Citigroup to breath again and concentrate no their business instead of looking for other ways to get more financing from months to months. This will stabilize the whole company and will probably be seen as really good news on the market.

It appears that Berkshire would terminate the contracts with Primerica representative in order to switch most of the life insurance contracts to another of its company!

The price of the sale has not been announced yet, it will probably be declared during a press conference later on this week. If you know more details than I do, please share them with us!

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Provide an unbiased/accurate source of information about Primerica. That was the mandate I tried to accomplish while writing my Primerica series. When I receive questions such as the following ones, I think I got pretty close. So here’s the email I receive about the business opportunity offered by Primerica:

I have not yet joined Primerica because I haven’t been able to find enough unbiased information regarding the opportunity and others similar. I am hoping you can help me a little bit…

I currently have a full time career that I would like to continue at least UNTIL my income that I currently generate is COMPLETELY or close to being replaced by something else. I like the fact that you DO NOT have to do Primerica full.

I also like that Primerica does not require large capital to start (ex. buying a franchise) etc.

I like some of the products that they offer (Ex: S.M.A.R.T. Loans)

I do believe in the concept of Buying Term and Investing the difference.

I like that you do not have to open a store front and I thinking meeting clients in their home is more suiting and gives them a higher comfort level.

Whether their rates are reasonable or if they have substantial benefit to be higher.

Whether you can operate a reasonable business ACTUALLY selling and writing financial plans without recruiting. I don’t mind helping others get licensed in insurance, mortgage, or securities if they want to but I don’t care for it to be to benefit me. I prefer to have my OWN success determined by me.

And MOSTLY,
Are there any other companies that you would suggest that allow me to do what I want on a part time basis like I mentioned?

As you can see, Chris (fictional name ;-)) resumed most of Primerica attracting points such as:

– Being your own boss.

– The option of working part time and not leaving your current job.

– The company culture of offering the best product for the client (don’t misunderstand me, I am not saying that Primerica is offering or not offering the best products, but they truly believe in helping the client in their company culture).

– Low start up cost.

I actually agree with most of his points. However, before I start answer his questions, I must say that in this kind of business (personal financial services, insurance, investment), it is really hard to succeed if you don’t work full time. While you have the option of making a lot of money, you need to put a lot of work into it as well.

In regards to product competitiveness (in term of pricing and global offer) I would say that even though Primerica was one of the first (or maybe the first) to offer term insurance, all insurance companies are now offering similar product. Therefore, I don’t think their product structure will give you an advantage neither become a flaw to your business. The main reason is that financial institutions are so strong that they can develop any good products offered by a competitor within months.

I actually don’t believe in pricing as a marketing tool anyway. I rarely negotiate with my clients. Why? If you are selling based on price, you will always have to be the lowest in town for everything, which is impossible if you want to still make money. Make your clients believe in you and in your added value (it can be responsiveness, competency, planning quality, etc.).

However, Primerica’s reputation might affect (for good or bad) your business. Let just say that it is a highly controversial company 😉

Can you work for Primerica and not recruit people? Sure, but if you do not recruit other Primerica agent, you are missing the main strength of Primerica business model: Multi Level Marketing (MLM). Your commission level is lower than other company in the industry in order to provide you the opportunity to recruit other Primerica agent. If you don’t want to, you are better of with another company.

Do I know any company where you can work part time in this kind of industry? I would answer that most investment and insurance companies where you act as a self-employed agent should let you do it. However, I did not have yet verified with other companies.

I would like to have your input for the benefice of Chris and everybody that is wondering if whether or not they should join Primerica Multi Level Marketing Business Model.

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To be honest, I am not really interested in their term life insurance product as they are similar to any other insurance company. They might have been one of the very first companies to sell term insurance back in the day but these days are over. Every insurance agent I have met in my life (working for several different companies) told me the same thing: we are there for our client and we will offer them the insurance product to cover their needs. So, guided with the light of one of the numerous commentators on my Primerica analysis, I decided to look into their mutual funds.

Therefore, my post is more focused on the Primerica Concert series offering diversified portfolios according to your investment profile.

According to Morning Star, they rate the aggressive growth, the growth and the moderate growth with a 5 stars score. The three of them offer double digit returns over 5 years (and over 3 years for the aggressive and growth portfolio). However, those funds are not for soft hearted as they all show negative double digit returns at one point in time as well. So if you like trashing with your investment as you were at a Marilyn Manson concert, you might enjoy the ride J Nonetheless, they are qualified in the 1st quartile most of the time and their Morning Star rate is quite good.

The Primerica Concert series seems to be an all-inclusive option for investors. These portfolios offer a great asset allocation between fixed income, cash, Canadian equities, American equities and International equities. On the other side, they are a bit too much concentrated in Canadian stocks to be considered a fully diversified fund. For example, the aggressive portfolio has a concentration of 46% in the Canadian market. So this diversification will help smoother the volatility but is not optimal.

Another thing caught my attention when I was digging further; the performance over 10 years. When I attempted to a Primerica meeting, they were mentioning double digit returns to make the financial projection. I guess they were referring to their Concert series. However, their 10 years performances are showing returns of 6% for the three categories of funds. So would you really like ending some years at -20% knowing that you will end-up with a small 6% overall returns? I have to mention that their MER’s of 2.5% are pretty high and certainly don’t help to show some good long term results!

In the end, I think that the Concert Series are still good mutual fund. They obviously outperform their category with a high percentage in Canadian equity. On the other side, their long term stats and MER’s don’t make me a huge fan of them either.

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